Market Failure
# Classification of Goods
# Rival
- Does the consumption by one party reduce the supply available for another?
# Excludable
- Is it possible to exclude a non-payer from the good or service
# Private Goods
Rival
- Your consumption of the good or service means another party cannot consume it Excludable
- There are requirements to be met before being able to access the good or service
# Club Goods
Non-Rival
- Your consumption of the good or service does not prevent another party from consuming it Excludable
- There are requirements to be met before being able to access the good or service
# Common Property Resources
Rival
- Your consumption of the good or service means another party cannot consume it Non-Excludable
- There are no requirements to be met before being able to access the good or service
# Public Goods
Non-Rival
- Your consumption of the good or service does not prevent another party from consuming it Non-Excludable
- There are no requirements to be met before being able to access the good or service
# Market Failure
# Tragedy of the Commons - Common Property Resources
- Refers to the over-consumption of common property resources
- Occurs as the resource is readily available and there are no restrictions on consumption
- However, once consumed the resource is not available to any other party.
# Free Rider Effect - Public Goods
- Free riders enjoy the benefits of the consumption of a resource without paying for the cost of provision
- This can lead to over-consumption and rapid damage of a public resource
# Policy Options to Address the Market Failure
# Common Property Goods
- Enforce restrictions on consumption - eg fishing limits
# Public Goods
- Create ownership of the resource - eg fines, fees
# Merit Goods and Demerit Goods
Merit goods
- Goods that are produced that have large external benefits for society
- Goods that will be underprovided in the economy if the product is left in the market
Demerit goods
- Goods that are produced that have large external costs for society
- Goods that will be overprovided if left in the market
- Are private goods as they are both rivalry and exclusive